By Carlos Pallordet.

Severe weather conditions in the US Midwest have led to a sharp rise in soya bean prices.  Despite high global risk aversion and weak commodity demand, soya bean futures on the CBOT (Chicago Board of Trade) hit an all-time record high on 10 July. Having increased more than 30% since the beginning of the year, market prices now stand at over USD15 per bushel, close to the level that was reached on July 2008 on the verge of the global financial crisis.

Chart:  Soya bean prices are headed for a record high

Source: Haver, Timetric

Drought across the South American Grain Belt – which includes Brazil, Argentina, Paraguay and Uruguay – prompted an initial boost in soya bean prices at the beginning of the year.  Following good planting conditions at the start of the season, yields were affected by the La Niña phenomenon which brought about hot temperatures and scant showers. As a result, soya bean production in Brazil and Argentina – the second and third world’s largest producers, accounting for half of world’s exports – declined by 15% and 20%, respectively, in 2011/2012.

Continuing dry weather conditions in the US Midwest are now providing further support to the price spike. In its latest release on 11 July, the U.S. Department of Agriculture (USDA) revised its 2012/2013 production forecast for Brazil to 83 million tonnes, down from 87 million.

Higher prices are likely to prompt an increase in the planted area and a recovery of production margins in Brazil. With the new season due to start in two months, weather forecasts bode well for planting conditions. This will come as relief, particularly to the southern states of Paraná, Rio Grande do Sul and Santa Catarina, which suffered a 37% decline in production last season.

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